Impact of Right to Work in India

Economic Environment Management PROJECT Impact of the “Right to work programme” in India SUBMITTED BY – Yash Jhaveri IIM Kozhikode Batch: EPGP04: Date of Submission: 27th January 2013 Contents INTRODUCTION : Right to Work In INDIA ……………………………………………………………………………… 3 What is NREGA / MGNREGA ……………………………………………………………………………………………….. WHAT ARE THE GENERAL BENEFITS RTW / MGNREGA …………………………………………………………… 4 HOW IS THE PROGRAM FINANCED? …………………………………………………………………………………….. 4 Financing pattern ………………………………………………………………………………………………………………. 4 Release of funds ………………………………………………………………………………………………………………… Comparison : RTW/MGNREGA Vs other government based employment schemes …………………… 5 Impact of RIGHT TO WORK / MGNREGA ………………………………………………………………………………. 5 Increase in GDP …………………………………………………………………………………………………………………. 5 Effect on Inflation ……………………………………………………………………………………………………………… Recommendations …………………………………………………………………………………………………………….. 7 REFERENCES ……………………………………………………………………………………………………………………… 8 2 INDIAN INSTITUTE OF MANAGEMENT – KOZHIKODE INTRODUCTION : Right to Work In INDIA Every human being have rights to fundamental aspects like right to food, life and education. India is a country where approximately thirty percent of the population is below the poverty line.
In order to provide millions of humans with rights to life, right to education and right to food that only have access to economic assets like labor power, providing them employment is very important. Unemployment is one of the major concern and reason for spreading poverty in India. The right to work according to Article 39 of the Indian Constitution urges the State to ensure that “the citizens, men and women equally, have the right to an adequate means to livelihood”, and that “there is equal pay for equal work for both men and women.
RIGHT TO WORK Program is implemented in India under Mahatma Gandhi national rural employment guarantee act – MGNREGA. The Mahatma Gandhi National Rural Employment Guarantee Act, 2005 (MGNREGA) was notified in 2005, 7TH Septmeber. What is NREGA / MGNREGA Mahatma Gandhi National Rural Employment Guarantee Act was earlier knows as NRGEA. Main aim of this program is to enhance the livelihood andsecurity of people residing in rural areas. This act guarantees a minimum 100 days of wage-employment in a financial year to a rural household whose adult members volunteer to do unskilled manual work.

Important original provisions of the MGNREGA are as outlined below: i. Every household in the rural India shall have a right to a minimum of 100 days of guaranteed employment every year for minimum one adult (above 18 years of age) member, for doing UNSKILLED manual labour, compensation for which is fixed at Rs 120 (one hUndred twenty only) on daily basis. ii. Only productive work shall be undertaken under this program. A list of permissible and preferred works has to be prepared by a state council who shall implement the program.
Such preferred works are identified basis the benefits of socio-economical work, the contribution made by such socio-economical work to social equity, and the ability of such work to create assets on permanent basis iii. For successful implementation and for labourers benefit the up-gradation of kills are required of unskilled workers. The program may provide such training and expenses towards these trainings iv. Taking into the consideration the guide lines of states council, Wages to such labourers to be paid in cash or in kind or both. v.
To make it easy for the applicant, the program states that employment shall be provided within a radius of 5 kilometres of the village where the applicant resides at the time of applying. In cases where employment is provided beyond such limit of 5 kilometres , transport allowances and daily living allowances shall be paid in accordance with Programme Rules; vi. Given the scenario where at least twenty women are employed at a site, a provision shall be made for one of them to be deputed to look after all / any children under the age of six who may be brought to the worksite if they accompany their parents.
The person deputed for such task of minding the children shall be paid the statutory minimum wage; vii. A small portion of the wages not exceeding 5% may be deducted as a contribution to welfare schemes organized for the benefit of labourers employed under the Programme. These welfare schemes are insurance: health and accident, survivor benefits, maternity benefits and social security schemes. 3 INDIAN INSTITUTE OF MANAGEMENT – KOZHIKODE WHAT ARE THE GENERAL BENEFITS RTW / MGNREGA: i. ii. The program provides social protection by providing employment opportunities to the people living in rural India.
The program promises livelihood security for the underprivileged and poor through creation of durable assets, improved water conditions and security, soil conversion and as a result of soil conversion higher land productivity The program provides services like drought-proofing and flood management in rural India Through the processes of a rights-based legislation, this program empowers the socially disadvantaged, specifically women, Scheduled Castes and Schedules Tribes The program ensures strengthening decentralized and participatory planning through convergence of various initiatives like anti-poverty and livelihood The program works on grass root levels by deepening democracy by strengthening Panchayati Raj Institutions MGNREGA is a powerful tool which implements transparency and accountability in governance thereby ensuring inclusive growth in rural India.
This is because of its impact on social protection, security of livelihood and democratic empowerment. iii. iv. v. vi. vii. HOW IS THE PROGRAM FINANCED? Financing pattern The center will bear the appended costs. 1. For unskilled manual workers: 100% cost of wages 2. For semi skilled and skilled workers :75% cost of wages and material 3. All administrative expense as determined and as per guidelines of central government which essentially includes salary and allowances of program officers and their support staff and work site facilities 4. Administrative expenses of CEGC The state will bear the appended costs 1. For semi skilled and skilled workers:25% cost of wages and material 2.
If in case the state government cannot provide wage employment within 15 days of application, the state government to pay unemployment allowance to the applicant. 3. Administrative expenses of SEGC Release of funds: 1. Unlike in other state run programs where the funds are pre allocated, in this programme , the release of funds is wholly dependent upon the proposals given by the state 2. The ministry of rural development will decide on the sanction of funds once it receives state’s formulated annual work plan and budget proposal. (AWBP) 3. The annual work plan and budget proposal is based on the demands of funds received from the state’s districts and panchayats of districts 4.
AWBP also reports the use the of previous funds received by the state and also on key performance indicators determine under the scheme enabling an assessment of proposals received by state government. The said assessment is of qualitative nature. This enables the ministry to decide on the finalizing the amount for the state for the given financial year. The actual disbursement of funds to the state also depends upon the utilization of funds previously allocated for the same state. 4 INDIAN INSTITUTE OF MANAGEMENT – KOZHIKODE 5. The district programme coordinator or the state applies to the ministry of rural development , once the 60% of funds released earlier are utilized, for next round of funding under CEGF 6. On receipt to disbursement of funds by the center, the state government will release the funds to the program within 15 days.
Comparison : RTW/MGNREGA Vs other government based employment schemes There are a few valid reasons why a right to work- guarantee of employment works better as compared to fly by night program introduced by center and state: • guarantee of employment increases the purchasing capacity of those who are demanding work • This program ensures the inclusion of the poorest of the poor in employment schemes. • The Program brings a sense of security in the laborers lives. Employment guarantee programme boosts the confidence of laborers with respect to high local employment prospect and hence discourage season based migration, most laborers resort to in difficult times. Right to work is A legally binding employment guarantee program is far more durable and reliable than fly by night schemes and programs run by state government which have proven on more than one occasions to be extremely short-lived. Impact of RIGHT TO WORK / MGNREGA Increase in GDP Planned expenditure of government is increasing as government is spending (budgeted 33,000 crore for 2012-13) on welfare or construction projects to give work to the unemployed people. A substantial part of this spending goes as the wages to the direct labour. As marginal propensity to consume (MPC) of this labourers is very close to 1, the effect of this government expenditure to the increase of GDP will be very high , which in turn leads to high growth in GDP. As per Keynesian model , increase in the government expenditure will make the GDP grow which in turn amounts for higher output.
MGNREGA as Accelerator High proportion of agricultural population actually owns land. After spending on normal consumption for livelihood, the amount saved is mostly spent on their own farms. So the production from their land also increases leading to further increase in GDP. Change in Interest Rates As we have already discussed, because of the MGNREGA, GDP is supposed to increase, interest rate is higher than earlier. Because of the increase in government spending, consumption also increases, i. e. , demand in the goods market increases leading to a rightward shift of the demand curve. With an increase in output, interest rate also increases.
As interest rate increase, investors will be less willing to borrow money from banks. As a result, capital Investment will come down. Decreasing investment will have a negative effect on GDP which will eventually come down. So the net effect on GDP by government sPending for MGNREGA employment will be little less. 5 INDIAN INSTITUTE OF MANAGEMENT – KOZHIKODE Effect on Inflation Because of the MGNREGA, (i) unemployment is reducing and (ii) people who had a no / nominal income previously are now having nominal /higher income. The overall effect would be reduction of unemployment in the economy. MGNREGA leads to inflation but only in the short run.
The higher wage rates in MGNREGA increases the wages of the workers who are working under MGNREGA thereby increasing their marginal propensity to consume. This leads to increase in the demand of food items. In the short run this leads to increase in the prices of the commodities mainly the food items and thus leading to increase in inflation. Also the workers employed under MGNREGA are unavailable for agricultural work during the harvest season, this leads to shortage of farm workers. As a result labourers need to be hired by offering higher wages than that offered under NREGA. As the cost of labour is increased, the effect of this can be observed in the form of increase in the prices of the farm output and thus shifting the Aggregate supply AS curve to the left.
The above mentioned phenomenon can be observed only in the short run because in the long run the infrastructure activities carried out under MGNREGA like construction of wells and dams for irrigation purpose, leveling of roads and water conservation and harvesting will increase the farm output produced thereby leading to increase in the supply of food items thus shifting the AS curve back to the right and thus reducing inflation. Implications Since its inception, the Act has generated 1112. 03 crore person-days. Almost 70% of the MG NREGA labour. The average wage earned has risen from ? 65 per person day in 2006 to ? 100 in 2011. Inclusive Growth – The share of SC/ST families in the work provided under MGNREGA over the previous five years has ranged between 51-61%. Women workforce participation under the Scheme has surpassed the statutory minimum requirement of 33 per cent. Over the previous five years it has ranged between 40-48%. In 2011, there were allegations that the programme was no more effective than other poverty alleviation plans in India.
Rumors and reports had a buzz of corruption, controversy and scam written all over MGNREGA. Corrupt officials puncturing the budgets that are allocated, government expenditure routed from the funds for deficit financing, poor quality of infrastructure built under this program, were some of the issues that were being pointed at and questioned. 6 INDIAN INSTITUTE OF MANAGEMENT – KOZHIKODE Recommendations The MGNREGA scheme has been designed as a supply-based model, where the number of works undertaken is dependent on the amount of labourers that register with the scheme. This caters to the primary objective of generating wage employment in India.
Although to ensure quality-driven growth, the model has to incorporate a demand-based side, where the labourers are given work according to the value-addition required. The clause about providing an employment within five kilometers of the residence of a labourer needs tweaking. 7 INDIAN INSTITUTE OF MANAGEMENT – KOZHIKODE REFERENCES * NREGA Report to the people – 2nd Feb ‘12 (http://nrega. nic. in/circular/Report%20to%20the%20people_english%20web. pdf) * NREGA Website (http://nrega. nic. in/netnrega/home. aspx) * ‘The Macroeconomics of NREGA’ – Live Mint article (http://www. livemint. com/Opinion/nKoASa6hFXSX3w8Wd0EeWI/Views–The-macroeconomicsof-Nrega. html) * Macroeconomics – N. Gregory Mankiw * ‘The Modern Minimum-Wage Controversy and Its Antecedents’ – A paper by Thomas C. Leonard

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